The selloff began on Wednesday after the RBI announced plans to harmonise prudential norms and conduct standards across regulated entities offering gold loans. Muthoot, one of the country’s largest gold loan financiers, derives 98% of its total Assets Under Management (AUM) from loans backed by gold jewellery.
“Loans against the collateral of gold jewellery and ornaments, commonly known as gold loans, are extended by regulated entities for both consumption and income-generation purposes,” said RBI Governor Sanjay Malhotra during his monetary policy speech. “In order to harmonise guidelines across various types of regulated entities, to the extent possible, keeping in view their differential risk-bearing capabilities, we shall issue comprehensive regulations.”
The upcoming rules include a uniform Loan-to-Value (LTV) cap of 75% for all gold loans. Bullet repayment loans must maintain this ratio on the full amount due at maturity, and if breached for over 30 days, lenders will need to make an additional 1% provision. Loans cannot be renewed if the LTV cap is breached at maturity.
Additionally, lenders must classify gold loans taken for income-generating purposes based on actual usage and are required to document and monitor the end-use of such funds.
The regulatory move was announced alongside a broader monetary policy easing. The RBI cut its benchmark repo rate by 25 basis points to 6%, its second straight cut, and shifted its stance from “neutral” to “accommodative”. The SDF rate now stands at 5.75%, while the MSF and Bank Rate were set at 6.25%.The central bank also lowered its GDP growth forecast for FY26 to 6.5%, from 6.7% previously.Shares of other lenders with gold loan exposure, such as Manappuram Finance and IIFL Finance—which have 50% and 21% of their AUM in gold loans, respectively—also declined earlier this week following the RBI announcement.
Also read | Muthoot Finance, IIFL Finance shares fall up to 9% as RBI plans to tighten gold loan guidelines(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
